From the Imaginary Money to Metal Standards. The Italian contribution to monetary and financial thought in the 18th century.

The dissertation explores the "imaginary money" system, in which the unit of account was separate from the physical means of payment. This allowed rulers to stabilize and manage the monetary system more flexibly than later metal standards, which were more rigid. The study highlights the transition from imaginary money to metal standards like the English gold standard and the French bimetallic standard, which, while initially stabilizing currency, eventually led to deflationary pressures and rigid constraints, as Keynes’ critique demonstrates. The dissertation investigates why imaginary money was abandoned in favor of these rigid standards, considering economic, political, and ideological factors. It reviews academic debates on imaginary money, tracing the views of historians and economists like Marc Bloch and Luigi Einaudi, and follows key discussions from the Great Recoinage in England to the political debates in 18th-century Italy. A significant result is the categorization of economic and monetary thought into four main schools that emerged in England and France between the late 17th and early 18th centuries: Lockean conventionalism: John Locke supported a fixed monetary standard, equating the unit of account with the weight of precious metals, forming the foundation for the gold standard. Newtonian naturalism: Isaac Newton, following Copernican ideas, argued that the value of money depended on the value of its metal content, determined by its relative scarcity and market price. Barbon’s nominalism: Nicholas Barbon argued that money’s value depended on its face value, regardless of intrinsic value, relying on legal enforcement. Law’s Chartalism: John Law’s chartalist theory held that the value of money was determined by supply and demand, advocating paper money backed by stable assets. The dissertation then turns to 18th-century Italy, situating Italian monetary theories within these international frameworks. Italian economists generally adhered to naturalism, but after Locke’s writings were translated, they adopted his views. Economists like Neri and Carli in Milan argued that a metal-based currency was essential for stability, while Verri and Beccaria proposed adjusting the legal value of coins to reflect their intrinsic worth. In Naples, Ferdinando Galiani defended "money enhancement" (increasing face value over intrinsic value) to support the government and productive class during times of debt and deflation. Galiani’s approach, although chartalist, still believed in precious metals as “universal money,” a secure asset for international trade. The dissertation also explores the rise of “political economy” in the 18th-century Italian debate. Milanese economists Verri and Beccaria developed a growth model based on a positive trade balance, viewing money as a commodity. They did not see an increase in money as an end, but as a means to stimulate competition and investment by lowering interest rates and raising wages. Galiani, from a chartalist perspective, saw money primarily as a unit of account, and suggested that "money enhancement" could resolve solvency and liquidity crises by redistributing wealth between debtors (farmers and craftsmen) and creditors (nobles and merchants), stimulating the economy. Ultimately, the dissertation argues that imaginary money served as a transitional tool, allowing governments to adjust monetary policy to economic and financial conditions, particularly in increasing the money supply. While valuable, its flexibility led to inflation and harmed creditors. As a result, the gold and silver standard, with its stabilizing power, ultimately prevailed. However, this shift destroyed the ancient monetary system based on complementary currencies, such as "low money" (copper and alloy), "noble money" (gold and silver), and bank money used in international credit settlements. The gold standard, although less flexible, outperformed other systems due to the revolutionary role of the Bank of England, which introduced government debt as its primary asset, allowing it to expand the money supply beyond metal reserves. This transition marks the growing importance of fixed standards in modern monetary policy, paving the way for contemporary financial systems prioritizing stability over the adaptable benefits of imaginary money.